CANADA FX DEBT-C$

Ticks weaker ahead of Bank of Canada decision

May 28, 2013|Reuters

* C$ at C$1.0340 to US$, or 96.71 U.S. cents * Bank of Canada rate decision eyed; move to neutral stancean off-chance * Prices of government bonds fall across the curve

By Alastair Sharp TORONTO, May 28 (Reuters) - The Canadian dollar weakenedmarginally in early trade on Tuesday, as the currency hoverednear recent lows ahead of a Bank of Canada rate decision due onWednesday. The loonie, as Canada's currency is colloquially known, hasfallen sharply in recent weeks as domestic data suggests theeconomy will lag behind its larger neighbor, the United States. "There definitely seems to be a desire to take some exposureto Canada off the table at the moment," said Shaun Osborne,chief currency strategist at TD Securities. At 9:20 a.m. (1320 GMT) the Canadian dollar wastrading at C$1.0340 to the greenback, or 96.71 U.S. cents,compared with C$1.0337, or 96.74 U.S. cents, at Monday's NorthAmerican close. Earlier in May, the loonie had almost breached equal valuewith the greenback, while several months ago it was worth morethan the U.S. dollar as it looked like the Bank of Canada wasmuch more likely to hike rates before the U.S. Federal Reserve. The Canadian central bank is scheduled to make its next ratedecision on Wednesday. A Reuters poll shows economists don'texpect any tightening until the end of next year as domesticdata keeps showing weakness. Some economists have questioned whether the central bankmight drop a key phrase about plans to raise borrowing costseventually. That language makes it the only Group of Sevencentral bank with an explicit tightening bias. But others have suggested Governor Mark Carney is unlikelyto make a policy shift with the last rate announcement before heleaves to head the Bank of England in July. "There is a train of thought in the market that on the basisof the data in Canada there is a justification perhaps for theBank moving to a neutral stance," Osborne said, adding that achange in policy is not his base assumption. He said the loonie could test C$1.06 within weeks, and thatdropping the tightening bias would likely push the currencythrough C$1.04 on Wednesday. The price of Canadian government debt fell across the curve,with the two-year bond off 2 Canadian cents to yield1.057 percent, while the benchmark 10-year bond fell16 Canadian cents to yield 2.000 percent.